9.02.2011

Power Play: Starz Picks On Netflix

Starz Entertainment's CEO Chris Albrecht issued a statement saying that Starz has walked out of negotiations with Netflix.
"Starz Entertainment has ended contract renewal negotiations with Netflix. When the agreement expires on February 28, 2012, Starz will cease to distribute its content on the Netflix streaming platform," Albrecht said in a Thursday statement.
Starz, the premium movie cable channel, owns the online rights to movies from two of the biggest Hollywood studios: Disney and Sony.

Michael Pachter, a research analyst at Wedbush Securities, told TPM that he suspects Albrecht is bluffing.

"I think that the truth is Starz is negotiating. All fours sides -- Starz, Netflix, Disney, Sony -- need a deal to happen and all four are counting on a deal to happen," he said. "Here's why: Starz needs money. Disney and Sony want money. And Netflix is willing to pay a lot more."

He added:

"My guess is that Netflix pays a lot more, not the $350 million Starz was asking but closer to the $200 million a-year deal signed with Epix, and, as in that deal, agrees to alter the content in some way that Starz wants, maybe a 90-day delay window. I don't know if that's exactly what they're going to do, but something like that." "By making this announcement on the same day that Netflix's price increases goes into effect, Starz is intending to publicly embarrass Netflix. They have until February 28. Let's say that Starz keeps this up and talks to the press, saying 'We have other alternatives. There are competing services coming up. We're signing up with them and we hope every one of our customers is coming with us.'"
"Now it's on Netflix to make a deal happen quickly."

So what's Netflix going to do?

"[Netflix CEO] Reed Hastings is as smart as they came. He's not just going to roll over and let Starz charge them the full $350 million," Pachter said. "He can't afford to let this set a bad precedent. He's got a hundred other deals to make with content companies. He's going to need to tread very carefully. But I think he'll pull it off."

Unlike the business environment in 2008, when Netflix first struck its deal with Starz, many other large companies like Amazon.com, Apple and even Walmart want to get into the hugely popular business of streaming movies online on-demand.

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